UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
Commission file number 1-8971
Rockefeller Center Properties, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3280472
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Avenue of the Americas, New York, N.Y. 10020
(Address of principal executive offices) (Zip Code)
(212) 698-1440
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
Common Stock, $.01 par value - 38,260,704 shares as of
July 29, 1994
<TABLE>
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
<CAPTION>
ROCKEFELLER CENTER PROPERTIES, INC.
BALANCE SHEETS
($ in thousands)
JUNE 30, 1994 DECEMBER 31,1993
ASSETS (UNAUDITED)
<S> <C> <C>
Loan receivable, net of unamortized
discount of $38,432 and $40,636 $1,261,568 $1,259,364
Portfolio securities 11,000 14,300
Interest receivable 50,380 38,063
Deferred debt issuance costs, net 4,583 4,936
Cash 172 252
Other assets 347 594
$1,328,050 $1,317,509
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Commercial paper outstanding, net of
unamortized discount of $489 and $427 $225,911 $247,223
Current coupon convertible debentures
due 2000 213,170 213,170
Zero coupon convertible debentures due
2000, net of unamortized discount of
$274,851 and $289,642 311,334 296,543
Distributions payable to stockholders 6,696
Accrued interest payable 44,434 33,662
Accounts payable and accrued expenses 1,513 1,746
803,058 792,344
Contingencies
Stockholders' equity:
Common stock $.01 par value:
150,000,000 shares authorized,
38,260,704 shares issued and
outstanding 383 383
Additional paid-in capital 705,517 705,517
Distributions to stockholders in excess
of net income (180,908) (180,735)
Total stockholders' equity 524,992 525,165
$1,328,050 $1,317,509
<FN>
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
ROCKEFELLER CENTER PROPERTIES, INC.
STATEMENTS OF INCOME
($ in thousands except per share data)
(UNAUDITED)
QUARTERS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues:
Loan interest income $27,030 $26,930 $54,060 $53,859
Portfolio income 232 785 472 4,005
Short term investment income 15
27,262 27,715 54,532 57,879
Expenses:
Interest expense:
Convertible debentures 12,891 12,093 25,782 24,186
Commercial paper, bank loan and
other 6,516 6,779 12,897 15,400
General and administrative 1,128 916 2,283 1,815
Amortization of deferred debt
issuance costs 176 177 352 353
20,711 19,965 41,314 41,754
Income before non-recurring income 6,551 7,750 13,218 16,125
Non-recurring income (gain on sales
of portfolio securities) 2,667 8,593
Net income $6,551 $10,417 $13,218 $24,718
Income per share:
Primary:
Net income per share $0.17 $0.28 $0.35 $0.66
Fully diluted:
Net income per share N/A $0.28 N/A $0.60
<FN>
See notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
ROCKEFELLER CENTER PROPERTIES, INC.
STATEMENTS OF CASH FLOWS
($ in thousands)
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Loan interest received $39,348 $38,373
Portfolio and other interest received 664 5,404
Interest paid on commercial paper, bank loan
and other (13,444) (17,131)
Payments for accounts payable, accrued expenses
and other assets (2,259) (1,478)
Net cash provided by operating activities 24,309 25,168
Cash flows from investing activities:
Portfolio maturities and redemptions 3,300 8,750
Sales of portfolio securities 102,518
Net cash provided by investing activities 3,300 111,268
Cash flows from financing activities:
Maturities of commercial paper, net (20,993) (107,013)
Dividends paid (6,696) (9,378)
Repayment of bank loan, net (20,000)
Net cash used in financing activities (27,689) (136,391)
Net (decrease) increase in cash (80) 45
Cash at the beginning of the period 252 132
Cash at the end of the period $172 $177
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
Net Income $13,218 $24,718
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on portfolio sales (8,593)
Amortization of discount:
Zero coupon convertible debentures 14,791 13,419
Loan receivable (2,204) (2,027)
Portfolio securities (317)
Increase in interest receivable (12,317) (11,966)
Decrease in deferred debt issuance costs and
other assets, net 600 400
Increase in accrued interest payable and
amortized unpaid discount on commercial paper 10,454 9,959
Decrease in accounts payable and accrued expenses (233) (425)
Net cash provided by operating activities $24,309 $25,168
<FN>
See notes to financial statements
</TABLE>
ROCKEFELLER CENTER PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. LOAN INTEREST INCOME
Loan interest income of Rockefeller Center Properties, Inc. (the "Company")
is calculated on the basis of the average yield on the notes evidencing the
loan from the date of issuance through December 31, 2000 (the "Equity
Conversion Date" and the date at which the loan will, if not converted,
begin to bear floating rates of interest). The average yield is 8.51% per
annum and combines (using the interest method) the differing coupon rates of
base interest with the amortization of the original issue discount
applicable to the loan.
2. DEBT
CONVERTIBLE DEBENTURES
Interest expense recognized on the convertible debentures is based on the
average yields from the date of issuance through the maturity date, December
31, 2000. The average yields are computed (using the interest method with
semiannual compounding) by (1) combining the differing coupon rates on the
Current Coupon Convertible Debentures and (2) amortizing the original issue
discount related to the Zero Coupon Convertible Debentures. The resulting
effective annual interest rates are 9.23% and 10.23% for the Current Coupon
and Zero Coupon Convertible Debentures, respectively.
COMMERCIAL PAPER OUTSTANDING
As of June 30, 1994, there was $226,400,000 face amount of commercial paper
outstanding, at a weighted average interest rate of 4.4% and a weighted
average maturity of 26 days. The Company's commercial paper, which as of
June 30, 1994 could be issued in amounts up to a total of $230,000,000, is
supported by two letters of credit having the highest short-term credit
ratings. One letter of credit, originally in the amount of $200,000,000,
was scheduled to expire in May 1993, but has been extended to December 15,
1994. This letter of credit has been reduced to $30,000,000 as of June 30,
1994 and is subject to further scheduled reductions as outlined below. The
other letter of credit in the amount of $200,000,000, is scheduled to expire
in June 1995 and is not subject to any scheduled reductions. (See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations -- The Company".)
Scheduled Facility
Reductions Level
June 30, 1994 $30,000,000
August 31, 1994 $12,000,000 18,000,000
December 15, 1994 18,000,000 0
Reductions in the outstanding commercial paper borrowings supported by this
letter of credit have been and will continue to be funded with proceeds from
the sale of the Company's portfolio of investment securities and from
operating cash flow. The Company expects to liquidate all of the remainder
of its portfolio investments during the third quarter of 1994. The Company
has also agreed that during the term of this facility it will not repurchase
any of its convertible debentures or its common shares, and that it will
limit its annual dividend to the higher of $1.00 per share or 95% of annual
net income as computed for tax purposes.
The commercial paper borrowings are unsecured and upon maturity the Company
has refinanced them, and, except as discussed above and as found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources -- The Company", intends to
continue to refinance them, with other commercial paper borrowings.
Commitment fees on each letter of credit are payable quarterly in arrears
and are charged to interest expense as accrued.
Between 1987 and 1992, the Company repurchased and retired $366,065,000 face
amount of its Zero Coupon Convertible Debentures (38.4% of the original
issue) and $121,830,000 face amount of its Current Coupon Convertible
Debentures (36.4% of the original issue) (collectively, the "Convertible
Debentures"). The proceeds from the issuances of commercial paper were used
by the Company to finance its repurchases of the Convertible Debentures and
its acquisition of a portfolio of investment securities and are used for
other general corporate purposes.
In connection with its issuance of commercial paper and the acquisition of
its portfolio of investment securities, the Company entered into interest
rate swap agreements with financial institutions that were intended either
to fix a portion of the Company's interest rate risk on floating rate debt
("Liability Swaps"), or to fix the yield on its floating rate portfolio
securities ("Asset Swaps"). At June 30, 1994, the Company had in effect
swap arrangements in the notional principal amounts of $285 million in
Liability Swaps and $40 million in Asset Swaps. Under the Liability Swaps,
the Company pays a fixed rate of interest semiannually (weighted average of
9.73% at June 30, 1994) and receives a variable rate of interest
semiannually (weighted average of 4.25% at June 30, 1994) based on 180-day
LIBOR. Under the Asset Swaps, the Company receives a fixed rate of interest
semiannually (weighted average of 9.47% at June 30, 1994) and pays a
variable rate of interest quarterly (weighted average of 4.59% at June 30,
1994) based on 90-day LIBOR.
The principal or notional amounts of interest rate swaps which are used for
hedging purposes are not reflected in the balance sheets. The incremental
revenue or expense associated with an interest rate swap is recognized over
the term of the swap arrangement and through March 31, 1993 had been
presented in the statements of income as a component of the interest revenue
of the related asset or the interest expense of the related liability. In
connection with the continuing reduction in the aggregate amount of
commercial paper outstanding which commenced in April 1993 and the sale of a
substantial portion of its portfolio of investment securities in order to
fund such reduction, beginning in the second quarter of 1993, the Company
has presented interest rate swaps on a net basis as a component of interest
expense on commercial paper, bank loan and other. Prior periods have not
been restated. Information on the expiration of such interest rate swap
contracts, as of June 30, 1994, is as follows:
Expiring
during year Notional Amounts
Net Swaps
Asset Liability Outstanding
Swaps Swaps At End of Year
1994 $5,000,000 $250,000,000
1995 5,000,000 255,000,000
1996 20,000,000 275,000,000
1997 5,000,000 $30,000,000 250,000,000
1998 5,000,000 125,000,000 130,000,000
1999 130,000,000 0
$40,000,000 $285,000,000
The net notional principal, weighted average interest rate of net swaps
outstanding and annualized net payment relating to interest rate swap
contracts, as of June 30, 1994, are as follows:
Net notional principal $245,000,000
Weighted average interest rate
of net swaps outstanding 5.573%
Annualized net payment $13,654,000
The current net settlement value of all swaps outstanding at June 30, 1994,
based on information supplied by the counter-parties to the swap contracts,
was a net liability for the Company of approximately $29 million.
Generally, the net settlement value would decrease with an increase in LIBOR
rates and would increase as a result of a decrease in LIBOR rates.
The Company has undertaken a study of its overall capital structure and as
part of such study it will continue to explore and evaluate, with the
assistance of Kidder, Peabody & Co., its investment banking advisor, means
to modify or reduce its interest rate swap positions. The Company has
agreed to apply 75% of any net proceeds received from common stock issuances
to reduce the duration of certain swaps. (See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations -- The Company".)
3. NET INCOME PER SHARE AND DISTRIBUTIONS
Net income per share is based upon 38,260,704 and 37,510,000 average shares
of Common Stock outstanding during the quarters and six months ended June
30, 1994 and 1993, respectively. For the quarter and six months ended June
30, 1994, fully diluted net income per share is not presented since the
effect of the assumed conversion of the Convertible Debentures would be anti-
dilutive. For the quarter and six months ended June 30, 1993, fully diluted
net income per share has been computed based on the assumption that all of
the Convertible Debentures are converted into common shares. For purposes
of calculating fully diluted net income per share for the quarter and six
months ended June 30, 1993, net income has been increased by the interest
expense related to the Convertible Debentures and the amortization of
deferred debt issuance costs and the weighted average number of shares
outstanding has been increased by the weighted average of the additional
common shares that would be issued upon conversion of the Convertible
Debentures during the period. The weighted average number of shares used in
such calculation was 82,541,731.
On June 15, 1994 the Company declared a quarterly dividend of $0.175 per
share, payable on July 25, 1994 to stockholders of record at the close of
business on July 8, 1994. The Company's dividend declarations are oriented
to maintaining the Company's real estate investment trust status, which
requires that annual dividends total not less than 95% of annual net income
as computed for tax purposes.
4. LEGAL MATTERS
The Company is not a party to any material legal proceeding or environmental
litigation, nor is it aware of any such proceeding or litigation threatened
against it.
5. SUMMARIZED FINANCIAL INFORMATION
Summarized financial information concerning the results of operations of the
Property (as defined below) has been furnished to the Company by the
Borrower (as defined below) and is presented below:
($ in thousands)
(unaudited)
Quarters ended Six months ended
June 30, June 30,
1994 1993 1994 1993
Gross Revenue $55,785 $55,988 $111,033 $114,342
Operating Expenses (33,582) (34,410) (67,655) (69,537)
Depreciation and
amortization (5,866) (5,287) (11,846) (10,737)
Interest expense, net (28,994) (28,640) (57,948) (57,245)
Net Loss ($12,657) ($12,349) ($26,416) ($23,177)
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources--The Company
- --------------------------------------------
The discussion below relates primarily to the Company's financial condition
and results of operations for the first six months of 1994. Investors are
encouraged to review the financial statements and the Management's
Discussion and Analysis of Financial Condition and Results of Operations for
the year ended December 31, 1993 contained in the Annual Report for 1993 for
a more complete understanding of the Company's financial condition and
results of operations.
The primary source of liquidity for the Company is interest income received
on its mortgage loan to two partnerships (collectively, the "Borrower").
The mortgage loan is secured by the real property interests comprising most
of the land and buildings known as Rockefeller Center (the "Property").
During the six months ended June 30, 1994 and 1993, cash generated from
interest income on the mortgage loan was $39,348,000 and $38,373,000,
respectively. The increase of $975,000 in interest income received on the
mortgage loan is attributable to the scheduled increase in the annualized
coupon rate on the mortgage loan. The rate of base interest on the mortgage
loan increases each year until the year 2000 according to a fixed schedule.
Following is the schedule of the rate of base interest and the amount of
base interest scheduled to be received by the Company in each of the
following years ending December 31:
Rate Amount Rate Amount
1994 8.115% $105,495,000 1998 8.410% $109,330,000
1995 8.390% 109,070,000 1999 8.420% 109,460,000
1996 8.400% 109,200,000 2000 8.430% 109,590,000
1997 8.410% 109,330,000
While the mortgage loan coupon rate for the year 1994 is 8.115%, interest is
receivable from the Borrower in accordance with a schedule requiring the
Borrower to pay on November 30 of each year that portion of the interest
payment due for the whole year equal to the Company's original obligation
with respect to the original outstanding amount of its Current Coupon
Convertible Debentures ($26.8 million for 1994) and the remainder quarterly
on February 28, May 31, August 31 and November 30 of each such year
($19,674,000 for each such date for 1994).
The mortgage loan also provides for Additional Interest (as defined therein)
to be earned by the Company under certain circumstances. For each year
through 2000 in which Gross Revenues (as defined therein) of the Property
exceed $312.5 million, Additional Interest would accrue in an amount equal
to the sum of (i) 31.5% of such excess plus (ii) $42.95 million and would be
payable currently only to the extent of available cash of the Borrower. If
cash were not available, the payment of Additional Interest would be
deferred (without interest) until the Equity Conversion Date or such earlier
time as cash became available. No Additional Interest has been earned by
the Company to date. Based on present conditions in the Midtown Manhattan
rental market, the Company does not currently expect that it will earn
Additional Interest.
Portfolio and other interest received during the six months ended June 30,
1994 and 1993 was $664,000 and $5,404,000, respectively. The decrease in
portfolio and other interest received of $4,740,000 was due to portfolio
sales and maturities, the proceeds from which were used to reduce the
Company's short term debt during 1993 and the first six months of 1994.
During the first six months of 1994 the Company reduced its investment
portfolio from $14,300,000 to $11,000,000 and combined with operating cash
also reduced its short term debt by $21 million. The balance of the
investment portfolio is comprised of three securities which are valued in
total at $11,000,000 and which either mature or will be sold during the
third quarter of 1994. Accordingly, portfolio interest received in 1994
will be substantially less than portfolio interest received in 1993.
The following schedule presents the components of commercial paper, bank
loan and other interest paid during the periods shown.
Six Months ended June 30,
1994 1993
---------- ----------
Interest rate swap agreements $7,718,000 $8,915,000
Commercial paper (including
commercial paper fees
and expenses) 5,726,000 7,998,000
Bank loan 218,000
$13,444,000 $17,131,000
As discussed in Note 2 to the Financial Statements, the annualized net
payment relating to the $245,000,000 net notional principal of the interest
rate swaps outstanding at June 30, 1994 was $13,654,000. This amount may
change during the remainder of 1994 and in subsequent years, as the floating
rates receivable under the Company's Liability Swaps and the floating rates
payable under the Company's Asset Swaps are periodically re-set. Also, as
discussed in Note 2 to the Financial Statements, the Company is committed to
scheduled reductions in its commercial paper borrowings issued under the
letter of credit scheduled to expire on December 15, 1994. Accordingly, the
average amount of commercial paper outstanding during 1994 is expected to be
substantially below the average amount outstanding during 1993, and barring a
substantial increase in average commercial paper rates, the Company would
expect that interest paid on commercial paper will be lower in 1994 than that
paid in 1993. The Company's second letter of credit, which is scheduled to
expire in June 1995, is not subject to any scheduled reductions. However,
the Company's ability to continue to issue commercial paper would cease if
the Company were not able to renew or replace that letter of credit. If the
Company were not able to continue to issue commercial paper, it would have to
turn to commercial bank loans or other sources to replace its current funding
through the commercial paper markets and there can be no assurance at this
time that such replacement funding would be available to the Company or as to
the terms upon which any such replacement funding, if available, could be
obtained. At June 30, 1994, the net notional principal of outstanding
interest rate swaps ($245 million) was greater than the total commercial
paper issuable by the Company under its two letters of credit backed
commercial paper facilities ($200 million and $30 million). (See also
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations -- The Company.)
The Company has undertaken a study of its overall capital structure, and as
part of such study it will continue to explore and evaluate, with the
assistance of Kidder, Peabody & Co., its investment banking advisor, means
to modify or reduce its interest rate swap positions. The Company has
agreed to apply 75% of any net proceeds received from common stock issuances
to reduce the duration of certain swaps.
Coupon payments on outstanding Current Coupon Convertible Debentures are
made annually on December 31. The interest rate payable on the $213,170,000
Current Coupon Convertible Debentures outstanding as of June 30, 1994 is 8%
per annum and, assuming no change in the amount of Current Coupon
Convertible Debentures outstanding, the interest payment will total
$17,054,000 on December 31, 1994. On January 1, 1995 this interest rate is
scheduled to increase to 13% per annum through December 31, 2000. As a
result of this increase in rate, the Company's annual disbursement for
interest on these debentures, assuming that all such debentures outstanding
on June 30, 1994 remain outstanding, would increase by $10,658,500 for 1995
and each subsequent year. The Company did not repurchase any of its
debentures during the first six months of 1994 and pursuant to the agreement
extending the maturity of one of its commercial paper facilities to December
15, 1994 (see Note 2 to the Financial Statements), the Company has agreed
not to repurchase any of its debentures during the term of that agreement.
Combined net cash flow provided by operating and investing activities during
the six months ended June 30, 1994 was $27,609,000, which was used, together
with cash on hand, by the Company to reduce commercial paper borrowings in
the amount of $20,993,000 and to pay dividends in the amount of $6,696,000.
The Company is the beneficiary of standby irrevocable letters of credit that
are subject to specified reductions and that, among other things, provide
support for the Borrower's payment of base interest on the mortgage loan.
Subject to certain conditions, the Borrower is required to maintain in
effect similar letters of credit, or to pledge collateral with a fair market
value equal to the required amount of such letters of credit, during the
term of the mortgage loan. In April 1993, pursuant to agreements between
the Borrower and the Company, the level at which such letters of credit or
other collateral must be maintained was increased to $200 million until
December 31, 1994. On January 1, 1995, the level of this support will
revert to the level originally required to be maintained as of such date
under the Loan Agreement, which the Company expects will be not less than
$90 million. Also, the Borrower has placed in a special escrow account in
favor of the Company securities with a value equal to the amount of the
interest payment due under the loan agreement in November 1994
(approximately $46.5 million). This escrow will terminate upon the payment
to the Company of the November 1994 interest payment.
Results of Operations--The Company
- ----------------------------------
The Company's principal source of income during each of the six-month
periods ended June 30, 1994 and 1993 was loan interest income recognized on
the mortgage loan. Loan interest income exceeded loan interest received by
$14,712,000 and $15,486,000 during the six-month periods ended June 30, 1994
and 1993, respectively. The difference in each period is attributable
partially to the aforementioned schedule of periodic interest payments,
partially to the amortization of original issue discount applicable to the
mortgage loan and partially to the recognition of interest income on the
mortgage loan according to the "interest method" by which interest is
calculated on the basis of the average yield on the notes evidencing the
mortgage loan through the Equity Conversion Date. Loan interest income
accounted for 99.1% and 93.1% of total revenues during the six-month periods
ended June 30, 1994 and 1993, respectively.
Portfolio income, which accounted for approximately 0.9% of total revenues
during the six months ended June 30, 1994, declined by $3,533,000 from the
comparable period in the prior year as a result of sales and maturities of
portfolio securities. This source of revenue is expected to be eliminated
during the third quarter of 1994, as a result of future sales and maturities
of portfolio securities in order to fund in part the scheduled reductions in
commercial paper borrowings (see Note 2 to the Financial Statements). At
June 30, 1994 the face amount of the Company's portfolio of investment
securities was $11,000,000, and the weighted average annual interest rate
receivable on these securities was 8.45%.
Interest expense on Convertible Debentures for the six months ended June 30,
1994 increased by $1,596,000, or 6.6%, over that of the comparable prior
year period, principally as a result of accruals of interest on the
increasing accretion of the principal amount of the Zero Coupon Convertible
Debentures.
Interest expense on commercial paper, bank loan and other declined by
$2,503,000, or 16.3%, from the comparable prior year period reflecting a
combination of lower average commercial paper borrowings, lower average bank
loans outstanding, and the lower cost of servicing interest rate swaps due
to higher variable interest rates received on Liability Swaps. These
savings were partially offset by the higher cost of commercial paper interest
due to higher interest rates and to increased commercial paper fees incurred
in connection with the agreement to extend to December 15, 1994 the
commercial paper facility originally scheduled to expire in May 1993.
As discussed above in "Liquidity and Capital Resources--The Company" and in
Note 2 to the Financial Statements, at June 30, 1994 the net notional
principal of outstanding interest rate swaps ($245 million) was greater than
the amount of the Company's commercial paper which could be issued ($230
million), resulting in "uncovered" swaps in the notional principal amount of
$15 million. Also, as discussed, the Company has undertaken a study of its
overall capital structure, and as part of such study it will continue to
explore and evaluate means to modify or reduce its interest rate swap
positions and thus eliminate these "uncovered" swaps. However, should the
Company not be able to eliminate these "uncovered" swaps or if the present
value amount of the net payments related to these "uncovered" swaps becomes
material to the Company, then the Company may be required to take a non-cash
charge to earnings representing the present value of the future estimated
payments required under such "uncovered" swaps. During the first six months
of 1994, the amount of such a charge would have been immaterial to the
Company. Any such non-cash charge would not be deductible for tax purposes;
accordingly, it would have no impact on the Company's dividend.
General and administrative expenses for the six months ended June 30, 1994
increased by $468,000, or 25.8%, over that of the comparable prior year
period, principally due to increases in financial advisory fees, legal fees
and general corporate administrative expenses.
Results of Operations--The Property
- -----------------------------------
The financial information and analysis included in the following discussion
of the results of operations of the Property have been furnished to the
Company by the Borrower.
The operating results of the Property during the quarter and six months
ended June 30, 1994 and 1993 are presented in summary form in the table
below:
($ In Thousands)
(Unaudited)
Quarters Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
------- ------- ------- -------
Gross revenue:
Fixed and percentage rents $38,765 $37,833 $75,951 $75,061
Operating and real estate
tax escalation 12,473 13,735 24,763 28,303
Consideration revenues 282 104 2,013 2,637
Sales and service revenues 4,265 4,316 8,306 8,341
55,785 55,988 111,033 114,342
Operating Expenses:
Real estate taxes 10,558 11,584 21,116 23,204
Utilities 3,389 3,320 8,304 8,030
Maintenance and engineering 8,245 8,338 15,784 15,784
Other operating expenses 9,756 9,458 19,230 19,057
Management fee 657 642 1,314 1,284
General and administrative 977 1,068 1,907 2,178
33,582 34,410 67,655 69,537
Operating income before
interest, depreciation
and amortization 22,203 21,578 43,378 44,805
Depreciation and amortization 5,866 5,287 11,846 10,737
Interest expense, net 28,994 28,640 57,948 57,245
Net Loss ($12,657) ($12,349) ($26,416) ($23,177)
The gross revenue of the Property during the quarter and six months ended
June 30, 1994 decreased by $.2 million and $3.3 million, respectively, when
compared to the comparable prior year periods. The decrease in gross
revenue during the quarter was primarily a result of lower operating and
real estate tax escalation revenue. The decrease in operating and real
estate tax escalation revenue reflects the establishment of new escalation
base years in connection with new leases and lease renewals and a decrease
in escalatable real estate tax expense. This decrease was partially offset
by a higher fixed rent related to new leases and lease renewals. The six
month decrease in gross revenue was primarily a result of lower operating
and real estate tax escalation revenue and decreased consideration revenue.
Consideration revenue principally consists of one time negotiated payments
by tenants for the right to cancel their leases prior to scheduled
termination. This decrease was partially offset by a higher fixed rent
related to new leases and lease renewals.
The following table shows the occupancy rates for the Property at specified
dates:
September 30, 1992 - 94.3% September 30, 1993 - 94.1%
December 31, 1992 - 94.0% December 31, 1993 - 94.6%
March 31, 1993 - 93.9% March 31, 1994 - 95.6%
June 30, 1993 - 93.9% June 30, 1994 - 96.1%
During the six months ended June 30, 1994, 113 leases covering approximately
696,000 square feet of office, retail and storage space were concluded and
took effect at net effective annual rates averaging $32.74 per square foot.
Office space, which accounted for approximately 654,000 square feet of such
696,000 square feet, was leased at net effective annual rental rates
averaging $32.18 per square foot (compared to $31.54 per square foot for
office space leases signed in all of 1993). Net effective annual rental
rates are net of tenant improvements, concessions and brokerage commissions.
The gross rental rates for such office space leases which were concluded and
took effect during the six months ended June 30, 1994 averaged $43.00 per
square foot (compared to $38.01 per square foot for office space leases
signed in all of 1993). The actual rate at which each lease was executed
depended upon its location within the Property, type of space leased, lease
length and other factors. Of the approximately 654,000 square feet of
office space leased during the six months ended June 30, 1994, approximately
464,000 square feet represented renewals of existing tenants at an average
gross rental rate of $43.17 per square foot. The combined fixed rent and
escalation payments prior to lease renewal for these renewing tenants
averaged $41.32 per square foot.
In addition to the leases discussed above, leases representing 841,000
square feet of rental space scheduled to become available on October 1, 1994
(of which approximately 801,000 square feet was for office space) were
concluded during 1992 and 1993 and will take effect on October 1, 1994. The
rental rates achieved on these leases met or exceeded existing market
conditions at the time of lease execution; nevertheless, because these
leases were concluded principally with major tenants, the average net
effective annual rental rates achieved for these leases was $29.37 per
square foot ($28.98 per square foot for leases for office space). The gross
rental rates for office space under these leases averaged $37.84 per square
foot. Of the approximately 801,000 square feet of office space referred to
above, approximately 730,000 square feet represented renewals of existing
tenants at an average gross rental rate of $37.64 per square foot. The
combined fixed rent and escalation payments prior to lease renewal for these
renewing tenants averaged $32.63 per square foot.
The following table shows selected lease expiration information for the
Property as of June 30, 1994 and has been furnished to the Company by the
Borrower. Lease turnover during the term of the mortgage loan could offer
an opportunity to increase the revenue of the Property or might have a
negative impact on the Property's revenue. Actual renewal rents and rental
income resulting therefrom will be significantly affected by market
conditions at the time and by the terms on which the Borrower can then lease
space.
Number of Percentage
leases Area of total
Year expiring (sq.ft.) rentable area
- ---- -------- --------- -------------
1994 159 1,018,415 16.5
1995 114 394,146 6.4
1996 66 175,586 2.8
1997 36 67,819 1.1
1998 47 183,516 3.0
1999 37 134,063 2.2
2000 21 327,990 5.3
2001 13 36,584 0.6
2002 22 132,994 2.2
2003 24 82,926 1.3
2004 40 292,322 4.7
2005-2019 94 1,529,283 24.7
2020 3 98,577 1.6
2022 4 1,282,698 20.7
Space under temporary
occupancy N/A 100,591 1.6
Vacant space N/A 243,681 3.9
Space occupied by the
Borrower 88,162 1.4
680 6,189,353 100.0%
The operating expenses of the Property decreased by $.8 million, or 2%,
during the quarter ended June 30, 1994, when compared to the comparable
prior year period. This decrease was a result of lower real estate taxes
($1 million), decreased general and administrative expense ($.1 million),
and lower maintenance and engineering expenses ($.1 million). These
decreases were partially offset by increased other operating expenses ($.3
million) and higher utility costs ($.1 million).
The operating expenses of the Property decreased by $1.9 million, or 3%,
during the six months ended June 30, 1994, when compared to the comparable
prior year period. This decrease was a result of lower real estate taxes
($2.1 million) and decreased general and administrative expense ($.3
million). These decreases were partially offset by higher utility costs
($.3 million) and increased other operating expenses ($.2 million).
The decrease in real estate taxes was primarily a result of a decrease in
the assessed valuation of the Property. The decreases in general and
administrative expense resulted from a decrease in the provision for
doubtful accounts. Higher utility costs reflect increased usage as a result
of the colder winter.
As a result of the foregoing, operating income before interest, depreciation
and amortization for the quarter and six months ended June 30, 1994
increased by $.6 million, or 3%, and decreased by $1.4 million, or 3%,
respectively, when compared to the comparable prior year periods.
Depreciation and amortization for the quarter and six months ended June 30,
1994 increased $.6 million, or 11%, and $1.1 million, or 10%, respectively,
as a result of a higher fixed asset base which included expenditures
required by the mortgage loan agreement, other capital expenditures and
improvements to tenant spaces.
Interest expense, net during the quarter and six months ended June 30, 1994
increased $.4 million, or 1%, and $.7 million, or 1%, respectively, as a
result of scheduled increases in interest expense on the mortgage loan and
increased interest expense as a result of additional loans made to the
Borrower by its partners to fund certain of the Property's capital
improvements.
Cash Flow--The Property
- -----------------------
For the six months ended June 30, 1994, the property experienced an
operating cash deficit of $4.9 million after payments of interest to the
Company of $39.3 million. For the six-month period ended June 30, 1993, net
cash provided by operating activities was $1.6 million after payments of
interest to the Company of $38.4 million. This increase in operating cash
deficit of $6.5 million was a result of increases in net working capital
($4.1 million), lower operating income before interest, depreciation and
amortization ($1.4 million) and increased interest paid to the Company ($1
million). The Borrower also expended funds for capital improvements to the
Property, tenant improvements and leasing commissions as follows:
(In thousands) Six Months ended
June 30,
1994 1993
------ ------
Capital improvements $4,699 $6,376
Tenant improvements 6,732 4,490
Leasing commissions
(including legal fees) 10,256 3,728
$21,687 $14,594
While the mortgage loan coupon rate for the year 1994 is 8.115%, interest is
payable in accordance with a schedule requiring the Borrower to pay on
November 30 of each year that portion equal to the Company's original
obligation with respect to the original outstanding amount of its Current
Coupon Convertible Debentures ($26.8 million for 1994) and the remainder
quarterly on February 28, May 31, August 31 and November 30 of each such
year ($19.7 million for each such date for 1994).
The Borrower experienced a cash flow shortfall of $26.6 million for the six
months ended June 30, 1994 as compared to a cash flow shortfall of $13
million for the six months ended June 30, 1993. The cumulative cash flow
shortfall of the Borrower since the inception of the mortgage loan in
September 1985 ($459.8 million) has been funded by capital contributions
($185.2 million), loans from its partners ($123 million) and non-interest
bearing advances from an affiliate ($151.6 million). The mortgage loan
agreement provides for the establishment of loans for the cumulative portion
of capital improvements made by the Borrower in excess of amounts specified
in the mortgage loan agreement. The cumulative amounts of excess capital
improvements totaled $123 million and $107.5 million at June 30, 1994 and
1993, respectively. These excess capital improvement loans are deemed to be
made to the Borrower by its partners and bear interest at 80% of the prime
rate (as defined), compounded quarterly, which is added to the loan
principal at the end of each year. At June 30, 1994 and 1993, the amount of
such excess capital improvement loans (including accrued interest) totaled
$149.7 million and $127.9 million, respectively. The results of operations
of the Property as of June 30, 1994 and 1993 reflect non-cash interest
charges of $3.6 million and $3.1 million, respectively, relating to interest
on these excess capital improvement loans. Both the excess capital
improvement loans and the non-interest bearing advances are subordinated to
the mortgage loan; however, if, on the Equity Conversion Date, the Company
exercises its option to convert the mortgage loan into an equity interest in
the partnership which will then own the Property, any outstanding loans for
excess capital improvements (including accrued interest) will become the
obligation of the partnership.
The Borrower is committed to expend significant amounts of funds for tenant
improvements and leasing commissions in connection with the renegotiated
and/or new 1994 leases. In order to renew and/or re-lease the remaining
space coming due during the remainder of 1994, significant funds could also
be required to be expended. Additionally, the Borrower has committed and
may be required to commit to rent abatements in connection with the renewal
and/or re-leasing of space.
The letters of credit previously discussed under "Liquidity and Capital
Resources--The Company", support the payment of base interest on the
mortgage loan in the event of cash flow shortfalls from the Property.
Independent Accountant's Report
- -------------------------------
Board of Directors
Rockefeller Center Properties, Inc.
We have reviewed the accompanying financial statements of Rockefeller Center
Properties, Inc. as of June 30, 1994, and for the three-month and six-month
periods ended June 30, 1994 and 1993. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements of Rockefeller
Center Properties, Inc. referred to above for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the financial statements of Rockefeller Center Properties, Inc.
at December 31, 1993 and for the year then ended (not presented separately
herein) and in our report dated January 19, 1994, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying balance sheet as of December 31,
1993 is fairly stated in all material respects in relation to the balance
sheet from which it had been derived.
/s/ERNST & YOUNG
New York, New York
July 19, 1994
ROCKEFELLER CENTER PROPERTIES, INC.
PART II.--OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not a party to any material legal proceeding or
environmental litigation, nor is it aware of any such proceeding
or litigation threatened against it.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of stockholders on
May 24, 1994.
(c) At the Annual Meeting, Mr. Holloway was reelected and Mr.
Murdoch was elected. The following table sets forth the
number of votes cast for and withheld in the election of each
of Messrs. Holloway and Murdoch:
For Withheld
Benjamin D. Holloway 30,266,213 1,212,707
William F. Murdoch, Jr. 30,356,182 1,122,738
Also at the Annual Meeting, stockholders were asked to
ratify the Company's appointment of Ernst & Young as independent
auditors for the year 1994. The following table sets forth the
number of votes cast for and against, as well as the number of
abstentions and broker non-votes on this item:
For Against Abstentions Broker Non-Votes
30,543,118 516,997 417,303 1,502
A stockholder's proposal recommending that the Board of
Directors of the Company take the necessary steps to recommend to
the stockholders of the Company that the Restated Certificate of
Incorporation of the Company, as amended, be amended to require
the annual election of all directors was voted upon by
stockholders at the Annual Meeting. This proposal was defeated.
The following table sets forth the number of votes cast for and
against, as well as the number of abstentions and broker non-
votes on such proposal:
For Against Abstentions Broker Non-Votes
5,667,032 10,251,088 967,900 14,592,900
A stockholder's proposal requesting that the Board of
Directors of the Company take the steps necessary to provide for
cumulative voting in the election of Directors was also voted
upon by the stockholders at the Annual Meeting. This proposal
was defeated. The following table sets forth the number of votes
cast for and against, as well as the number of abstentions and
broker non-votes on such proposal:
For Against Abstentions Broker Non-Votes
4,976,544 10,908,266 995,455 14,598,655
ITEM 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
A report on Form 8-K was filed on June 9, 1994, reporting events
under Item 5 and Item 7 of Form 8-K.
ROCKEFELLER CENTER PROPERTIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROCKEFELLER CENTER PROPERTIES, INC.
Date: August 9, 1994 By: /s/RICHARD M. SCARLATA
Richard M. Scarlata
Senior Vice President
Finance & Administration
(Principal Financial Officer and
Principal Accounting Officer)
